A. Field of Invention
This invention relates to equitably distributing a plurality of executed orders between a plurality of accounts.
B. Description of Related Art
Investment Managers or Traders manage portfolios for their clients. Portfolios may include investments in futures, options, equities, foreign exchange investments (FOREXs), bonds, derivatives, etc. For the purposes of the discussion that follows, these investments will be collectively referred to as “instruments”. Typically, an Investment Manager or Trader will manage the portfolios of multiple client accounts using a common strategy. For example, as shown in FIG. 1, an Investment Manager or Trader may manage three accounts, ACCOUNT_1, ACCOUNT_2, AND ACCOUNT_3, where each account has a different total investment value. In the example shown, ACCOUNT_1 has a total investment value of $5,000,000, ACCOUNT_2 has a total investment value of $3,000,000, and ACCOUNT_3 has a total investment value of $2,000,000. The Investment Manager or Trader may then research a particular investment in certain instruments, and decide to invest a portion of each of the client portfolios in the investment by purchasing a number of the instruments for each account. Often, as shown in the example, the portion of each portfolio to be invested is selected in relation to the total amount in each portfolio. Thus, in the example shown, the Investment Manager or Trader decides to purchase five instruments for ACCOUNT_1, three instruments for ACCOUNT_2, and two instruments for ACCOUNT_3, for a total of ten instruments. It is often the case, however, that all of the instruments are not available at a common price. Continuing with the example, as shown in FIG. 2, the Investment Manager or Trader may acquire six instruments at $1,140.20, two instruments at $1,140.50, and two instruments at $1,141.10. Since all of the instruments were not available at a common price, the Investment Manager or Trader must determine how to equitably distribute the instruments between the accounts. Each instrument may also be referred to as an “executed order”.
The Chicago Mercantile Exchange offers a system known as the Average Pricing System (APS) for such a purpose. The primary function of the APS is to allow clearing member firms, in defined circumstances, to confirm an average price to customers when multiple prices are received on the execution of an order, or a series of orders, during a single trading day. The APS calculates an average price for each order. Then, the APS calculates a cash residual associated with each instrument. The cash residual is defined as the dollar difference between the actual trade price and the average price. Thus, the instruments can be distributed to client accounts with the cash residuals for each instrument to provide an equitable distribution.
However, the use of the cash residuals is cumbersome for all of the parties involved, and is often confusing for the clients. Thus, there remains a need for a method of equitably distributing a plurality of instruments between a plurality of accounts that does not require calculation of the cash residual associated with each instrument, and, thus, does not have to account for such cash residual.